Temporary Stabilizations, Sudden Stops and Asset Prices
AbstractThis paper studies a temporary exchange rate based stabilization plan in which agents face a sudden stop of capital inflows. The model generates a rising path of real interest rates in advance of the exchange rate collapse. This generates a time-dependent non-monotonic path of required premium on domestic assets. The model-generated asset price dynamics closely mimics its empirical counterpart as witnessed during recent collapses of exchange rate based stabilization plans. The model also reproduces consumption and foreign reserve dynamics that closely mimic the data.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12846.
Date of creation: 08 Oct 2007
Date of revision:
Publication status: Published in Review of Development Economics, May 2009, vol. 13 no. 2, pp. 333-347
Contact details of provider:
Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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Asset Prices; Exchange Rate Based Stabilization Plans; Temporary Stabilization;
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- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
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